At least once a week I hear from someone who can’t get paid for work they’ve done.
That’s because some people believe they can have the power to change the contract they’ve signed, whether you agree with the change or not. They control the purse strings, so if you want to get paid, you’d better do what they say.
That’s why I believe you should preserve your lien rights on every job you do. If the job is big enough to require a signed contract, it should include a right to lien, and every job is big enough to require a signed contract.
The document has different names in different states: Pre-Lien, Notice of Intent to Lien, Preliminary Lien, Lien Notice, Mechanic’s Lien, etc. There are also different timing requirements in different states. Some states require a notice be sent before the project is started. Other states require a notice be sent within so many days of the project starting.
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I don’t know of any state that doesn’t have some form of lien protection for those who work on another person’s property. However, the laws are often convoluted and full of legalese to ensure that the legal profession gets involved. You need to know the rules in your state and file a preliminary notice on every job allowed. This document preserves your right to file a lien if necessary.
One of the biggest mistakes a contractor makes is thinking they don’t need to start this process because they know the client will be honest. They don’t want to upset the owner or general contractor. They don’t want to bring up something unpleasant at the beginning of the relationship.
This isn’t a relationship, it’s business. Let your clients know when they sign the contract that they’ll be receiving a notice from you, and possibly from your subs and suppliers. Tell them that this is simply preserving your right to be paid, and they have nothing to worry about if they follow the payment schedule on the contract.
If you’re a subcontractor, let the general know you will be sending a notice on every job, and follow through. If the general contractor balks, explain that you’re only doing what’s legally allowed to protect your business.
Maintaining your lien rights, and following through with a lien when necessary, demonstrates that you’re a professional. You run your business like a business and expect to be paid accordingly. It also sends a message to everyone concerned that your company won’t play games when it comes time to be paid for the work completed.
Now, I have had a few cases where the contractor’s attorney advised against filing a lien or a notice of intent to lien. The usual comment is, “Let’s wait and see what they do.” I suggest that if you hear that from your attorney, it is time for a new attorney. In most cases, sending a notice of intent to lien or actually filing a lien will encourage prompt payment. An attorney who suggests waiting is also interested in keeping the clock ticking with the hope this will turn into a lawsuit. Guess who wins that one?
Protecting your right to lien gives you the legal standing to go after flakes who won’t pay on time or at all. Prepare them for the notice before you sign the contract, send notice within the time frame specified by your state, and you’ll find you get paid on time.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.